4 ways the Secure Act could influence how you save money for retirement


Congress just passed a major bill that could change how you save for retirement.

On Thursday, the Senate approved the bipartisan Secure Act as part of a larger $1.4 trillion budget package. The House had approved the measure earlier this week, and it now goes to President Donald Trump to be signed into law.

The Secure Act represents the biggest legislative changes to retirement accounts since the Pension Protection Act of 2006. While many elements affect wealthy Americans and workers close to retirement, younger workers could see broader access to workplace retirement accounts and have more time for their contributions to grow in the market.

Here are four ways the new law may affect you.

If you're a part-timer or work for a small business, you could get access to a 401(k)

About 7 in 10 employees have access to retirement benefits at work, according to data from the Bureau of Labor Statistics. But it's more likely if you work for a big company: Just half of companies with 1-to-49 workers offer a retirement plan, versus 90% of those with 500-plus employees.

The Secure Act makes it easier for small businesses to band together to offer retirement plans, and offers tax credits as incentives for them to do so. It also requires businesses that offer 401(k)s to expand access to part-time workers who have logged at least 500 hours a year for three consecutive years.

The bottom line: You may soon have access to a workplace retirement plan where you didn't before, so keep an eye out for missives from HR.

Access to a workplace account could make it easier to get on track for retirement, with contributions coming directly out of your paycheck and higher contribution limits. In 2020, the 401(k) contribution limit is $19,500 for workers younger than 50, versus $6,000 to an IRA. You may also be able to get free money via matching funds from your employer.

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You'll have extra time to make retirement contributions and let them grow

Under current rules, workers can no longer make contributions to a traditional IRA once they reach age 70½. (You can continue putting money into a Roth IRA or workplace plan so long as you have earned income.)

The Secure Act repeals that maximum age for IRA contributions. It also pushes back the age when you have to start pulling from many retirement accounts — called required minimum distributions, or RMDs — to 72, from the current 70½.

"It's reflective of the time we're in: People are living longer and working later," says Doug Boneparth, a certified financial planner and founder of Bone Fide Wealth in New York City.

About a quarter of Americans plan to continue working after age 65 and as many say they don't ever plan to retire, according to a poll from The Associated Press-NORC Center for Public Affairs Research earlier this year. If you're among them, the change lets you keep putting aside money and keep it invested longer.

You can pull money from your retirement account to fund a child's birth or adoption

The Secure Act lets a new parent withdraw up to $5,000 from retirement accounts including a 401(k) or IRA, without the typical 10% early withdrawal penalty, to cover costs of having a baby or adopting.

There are already a handful of such exemptions on the books: First-time homebuyers, for example, can take up to $10,000 from an IRA without penalty.

But experts say tapping your retirement accounts should be a last resort. Using that money sets you back on your retirement goals, says Boneparth, who is also a co-author of "The Millennial Money Fix." "Ideally, you'd have done some planning around that goal" of parenthood or homeownership, he says, and have other savings you could draw from.

Building a rainy day fund can help you avoid turning to your retirement account, Erika Safran, a certified financial planner and the founder of Safran Wealth Advisors, told Grow earlier this year.

"Get into the habit of moving $50 a month into your money market fund," she says. "You can get in the habit of $100 and have it set up automatically. Because I think the key is to create a discipline and, if you're not all that disciplined, it's best to have a system. It can be small, but it has to be consistent, because it's the consistency that's going to reward you."

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You could see annuities among the investment options in your 401(k)

The Secure Act makes it easier for companies to include annuities in their 401(k) plans. These financial products pay investors fixed sums of money, helping create a steady stream of income in retirement. But there are several different varieties, and they can be complicated and expensive. Currently, just 9% of plan sponsors offer annuities as part of their investment lineup, according to the Plan Sponsor Council of America.

Financial advisors and consumer advocates point to this measure as one of the Secure Act's more controversial changes.

"Some annuities are very high-cost, very opaque. They're not all good," Christine Benz, Morningstar's director of personal finance, said earlier this week in a video for the research firm. "So, I think that that's where things get a little bit murky. It has the potential to be a win for investors, but it really will come down to what type of annuity is chosen."

Think of this legislative change as all the more reason to scrutinize your portfolio options, Boneparth says, and make sure you're in low-cost, quality investments that you understand.

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